Exam 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

To say that stock prices follow a "random walk" is to argue that stock prices ________.

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

The elimination of unexploited profit opportunities requires that ________ market participants be well informed.

If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates, then economics would say that expectation formation is ________.

If during the past decade the average rate of monetary growth has been 5 percent and the average inflation rate has been 5 percent, everything else held constant, when the Bank of Canada announces that the new rate of monetary growth will be 10 percent, the adaptive expectation forecast of the inflation rate is ________.

In October 2008, the stock market crashed, falling by ________ from its peak value a year earlier.

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10 percent, the current price of the stock would be ________.

Financial markets quickly eliminate unexploited profit opportunities through changes in ________.

If a forecast is made using all available information, then economists say that the expectation formation is ________.

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because ________.